The ideal situation is where the artist’s production distribution network and the prevailing popularity of the artist’s activities meet. In such a situation, each artist’s activity works effectively as promotion and easily allows the public to make positive purchasing decisions. When the artist gives interviews, performs gigs, or otherwise appears in public, the public should have immediate access to the artist’s products’ availability, but also prior information on where to find them. If the artist or management neglects this, the artist cannot take advantage of passive income, at least to its full extent.
When the artist’s distribution network is setup, it takes care of bringing products to dealers – in both physical and electronic forms. It is completely up to the artist’s management how this task is taken care of. Many artists because of the small size of their activities do most of these things themselves, however this is not always ideal. The goal of most artists is to achieve such revenue that they are able to outsource these activities to a record company or some other relevant player, depending wholly on the business area in question. Here we come to what was meant by the prevailing popularity and efficiency of the distribution network. The more familiar, the more popular, or the more promising the artist is, the greater the likelihood of cooperation with the artist. Here we come to what the previous chapter meant when describing footwork. It is the main task of artists to make their activities interesting – it’s about pop music.
Passive income in this context doesn’t mean that the goal is to be a state in which the money should come without doing anything. Not at all – it is the complete opposite. Work has to be done, but in advance. Music business earning logic has been arranged so that it possible to enjoy passive results. The clearest manifestation is found in music publishing. Song-writers get remuneration for the use of their songs whenever their music is publicly performed, or music recorded to a phonogram – as it is simply expressed. Copyright collecting societies monitor the use of copyrighted music and collects royalties from their use. These organizations pass on royalties to artists, provided the artists have joined the organization as clients or members. Copyright collecting societies, for example, grant licenses to radio stations or TV-stations when they play music in their programs. They also grant mechanical reproduction licenses when music is recorded on a phonogram. In this way it is perfectly possible that after writing a song an author such a piece of music can enjoy the copyright revenue only by joining such an organization. After that moment, he or she may no longer need to do anything, as the organization takes care of the monitoring of use and distributing royalties from users to authors. This is the passive income referred to in this book. The money doesn’t come from nothing but requires some prior work.
Here we come to the need of external help and the justification of its remuneration. In order to make passive income, an artist usually delegates powers of action to those who make the production available to the public. It is also about strategic know-how and channeling it to the artist. Many record companies and music publishers are able to get more revenue to an artist, even though they take a part of the revenue. The question here is the price that an artist should sensibly accept – as well as the content of the decision-making power that they relinquish in connection with this release.
In this case this means that no one can find a song unless they know of its existence. Music producers and artists don’t go looking for music they want to use from massive registers of copyright organizations. To this end, the area has its own actor – music publishers. On a professional scale, their job is to do the footwork on behalf of the song-writers they represent. In this context, we do not take a stand in the legitimacy of music publishing. No – we want to demonstrate passive income and the meaning of its accumulation. If the author and music publisher have a music publishing agreement, the publisher will participate in the ownership of the catalog that the agreement covers. Generally, the publisher gets the other half of the artist’s catalog insofar as it is associated with the publishing rights. At this point, it is good to point out that 50/50 is not the only method of calculation used. There are also other arrangement types.
When it comes to rehashing old songs, we find ourselves at the heart of the idea of passive income. There is the option for a previously released piece to generate additional revenue for its rights-holders. For such songs, the footwork has already been done and authors are in the ‘public domain’. On the other hand, for new and previously unreleased material, footwork is required almost without exception. For song-writers that are already in the public domain the task is easier.
If authors themselves intend to find performers for their songs, this footwork becomes their responsibility, in which the existence of the songs and their elements are brought to the attention of potential artists and producers. If authors want someone else to do it, they will likely have to convince music publishers of the excellence of their songs. In a nut shell, in order to enjoy passive results, you must first succeed in footwork.
Passive income occurs also in record sales. Royalties received by an artist can be classified as passive income. When the artist has recorded the music and made it available to the public, the artist no longer needs to do anything. The operation is over. The popularity of the album determines the amount of revenue. If the artist succeeds in the promotion and gains popularity, this is also reflected in the resulting income. At this stage it is good to point out that communicating music to the public via radio and television or online is also subject to copyright remuneration, not just album sales. Both an artist and the financial producer of a phonogram are entitled to earnings in the public performance of their recordings. Just as in the case of song-writers and music publishers, artists with recorded performances and their producers also have their own copyright collecting societies. Such compensation is also classified as passive income.
It is possible for an artist to become involved in passive income through other contexts than recording or music publishing. For example when their merchandise is sold on the internet by authorized dealers, or their music is associated with film or other moving images. Passive income therefore concerns all activities that no longer require the artist’s physical presence.
On the other hand, live performances are another income avenue for an artist, requiring a full show. Active income in contrast to passive, requires physical presence and real-time performances by the artist to earn income. It should also be noted that passive income does not exclude income from active sources. Consequently an artist, acting as a performer of their own music, can not only receive compensation for the actual performance itself, but also through copyright remuneration for performing the music publicly. If an artist performs music created by others, then the authors of the musical piece will acquire passive income from the public performance of their songs – and the performer will obtain direct premiums for the show.
Passive income has a meaningful connection to the artist’s business plan. The artist must be able to organize their activities to take into account and exploit the prevailing popularity and physical presence of the artist. Otherwise there is a risk the artist will be promoting in vain, although at the beginning of a career, when an artist is still making a name for themselves, this is not always possible.
© Mika Karhumaa 2018